Case law: Natural justice and bias (Norbrook / A Tank / Moulson)

Peter Phillippo, Brewer Consulting, considers case law.

The case: Norbook Laboratories Ltd -v- (1) A Tank (2) Moulson Champlant Limited, Technology and Construction Court, 12 May 2006.

The issue: The obligations placed upon arbitrators in respect of bias.

The implication: Arbitrators must ensure the parties are given adequate opportunity to respond to the representations made by their opponents. In situations where the arbitrator has been in contact with a potential witness without the parties present, the parties should also have access to details of what was said.

Natural justice and bias

While cases involving natural justice and bias are now commonplace in adjudication cases, it is rare that these issues occur in the more formalised arena of arbitration. However, the recent case of Norbrook Laboratories -v- (1) A Tank (2) Moulson Chemplant provides an example of the type of difficulties that can arise.

Moulson was a subcontractor to Norbrook for the design, manufacture and installation of a methanol recovery plant. Norbrook argued that the plant delivered by Moulson did not meet the specification and that, as a result, it had suffered losses totalling £434,498.

Moulson said that the plant did meet the specification and counterclaimed £145,252 for additional equipment and delays. Both parties agreed that, in accordance with the contract, an arbitrator would be appointed by the President of the Institute of Chemical Engineers (IChemE).

The arbitrator was duly appointed and, from an early stage, it was agreed that the arbitration would be conducted in accordance with the short procedure laid down in the IChemE Arbitration Rules. The process was initially put on hold while the parties attempted mediation, but this ultimately proved to be unsuccessful.

In February 2004, Norbrook issued its statement of claim and 30 days later Moulson issued its response. Unusually, Moulson’s response stated that, in order to minimise the cost of preparing the submission, Moulson had not obtained any witness statements to supplement its evidence, however, should the arbitrator require them, Moulson would be prepared to do so.

Acting alone

At this point, the arbitrator took a somewhat unorthodox course of action. At a directions meeting in July 2004, the arbitrator proposed that he would personally contact one of the witnesses and obtain a witness statement.

Norbrook protested on the grounds that the witness and Norbrook had previously been in dispute, indeed litigation, in respect of a separate matter and that the witness’s testimony would undoubtedly be prejudicial to Norbrook’s case. Later in July 2004, the arbitrator issued his directions, which required Moulson to provide the contact details for the witness so that the arbitrator could obtain her [the witness] statement himself.

The arbitrator proceeded to contact the witness by telephone and asked if she would be prepared to give a witness statement. The witness explained to the arbitrator the issues surrounding the termination of her employment by Norbrook, but refused to give a witness statement on the matters in the current dispute.

Undeterred, the arbitrator contacted two other potential witnesses, but again failed to obtain a witness statement. In August 2004, the arbitrator wrote to the parties informing them that he would continue to attempt to extract witness statements from the witnesses. In September 2004, the arbitrator wrote a letter to one of the witnesses asking her specific questions relating to the dispute. The letter was not copied to either of the parties.

Norbrook wrote to the arbitrator explaining that it would need to serve additional witness statements, expert reports and final submissions. In view of this, Norbrook felt that the short procedure would no longer be suitable.

Management powers

The arbitrator proceeded with the arbitration, but Norbrook con-tinued to express its serious concerns over the arbitrator’s direct contact with witnesses. The arbitrator explained to the parties that he had contacted the witnesses in accordance with his management powers under the arbitration rules, and that he aimed to take an even-handed approach in light of Moulson’s limited resources.

Norbrook later wrote to the arbitrator, asserting that he had failed to properly conduct the proceedings and, in accordance with the rules, gave notice to terminate the short procedure. That triggered Moulson to submit a schedule of costs to date, which the arbitrator proceeded to award against Norbrook.

Norbrook wrote to the arbitrator stating that the costs decision constituted a serious irregularity, as Norbrook had not been given the opportunity to comment. The arbitrator was undeterred and reiterated the costs award for Moulson.

Casting doubt

The matter was referred to the High Court before Mr Justice Colman. Norbrook submitted that the arbitrator’s impartiality was doubtful on the grounds that, among other things, he should not have contacted the witnesses without informing the parties and disclosing what was said and this constituted a failure to properly conduct the proceedings.

Norbrook requested that the arbitrator’s award(s) be set aside and for the arbitrator to be removed from his position.

The judge found that the arbitrator’s conduct in contacting the witnesses directly, and failing to inform the parties that he had done so, constituted a failure to conduct the proceedings properly and caused substantial injustice to the parties. Justice Colman went onto observe that:

"An arbitrator, in contact with a factual witness in the absence of one or both parties, may be exposed to information which consciously or unconsciously influences his judgment on a matter in dispute.

"It is therefore absolutely axiomatic that the parties should, at the very least, have the opportunity of access to what the witness or potential witness has said to the arbitrator so as to enable that party to refute any statement adverse to its case, or to rely upon any statement supportive of its case."

The judge concluded that a fair-minded and informed observer would have concluded that there was a real possibility of bias. For that reason he decided that, in accordance with the Arbitration Act 1996, the arbitrator should be removed under Section 24 and his award set aside under Section 68.

[Contract Journal, 19 July 2006, p. 26]